Is The Housing Recovery Just an Illusion Created by the Federal Reserve?

By Christopher Matthews – The Federal Reserve has kept short term interest rates at near-zero since 2008. In order to stimulate the economy further, the central bank has engaged in quantitative easing (QE) or the purchase of U.S. treasury bonds and mortgage debt in order to drive down long-term interest rates as well. The most recent round of QE was specifically aimed at mortgage-backed securites (MBS), and was effective at lowering mortgage rates to all-time lows.

Our economy is undoubtedly better off by being in a situation where home prices are rising rather than falling. But this analysis does beg the question: What happens when the Fed tries to extricate itself from quantitative easing? How will homeowners react when — because of the Fed’s selling of MBS — their home values plummet? more>


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